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This is a ten question multiple-choice quiz covering the material in this Unit. I hope you do well!

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Question 1 of 10

1. Question

10 points

Governments have two main policies to influence their countries’ economic activities. The policy dealing with changes in government spending and taxation is called __________, and the policy dealing with changes in the money supply and interest rates is called ____________.

fiscal policy; monetary policy

monetary policy; fiscal policy

physical policy; monastery policy

Classical economic policy; Keynesian policy

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Question 2 of 10

2. Question

10 points

Classical economists point out that there are three lags related the government’s implementation of fiscal policy. The time it takes for the government to collect enough information to determine that the economy is in a recession is called ___________. The time it takes from when a government knows that an economy is in a recession to the moment when it makes a decision (passes a bill) is called ___________. The time it takes for the money to be disbursed through the economy and for actual jobs to be created is called ____________.

information lag; policy lag; impact lag

policy lag; information lag; impact lag

impact lag; information lag; policy lag

information lag; impact lag; policy lag

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Question 3 of 10

3. Question

10 points

Automatic stabilizers, such as unemployment compensation, welfare programs and pre-approved subsidies to financially challenged groups do not suffer from the ________________ because they _______________ from Congress.

information and policy lags; don't need approval

inflationary gap; require approval

recessionary gap; require approval

impartial and discrimination lags ; don't need approval

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Question 4 of 10

4. Question

10 points

Which of the following is correct?

When an economy is in a recession, Keynesians recommend that a government increases spending and decreases taxes. This leads to budget deficits and requires government borrowing. An increase in government borrowing means that there is less money available to borrow by the private sector. This is called crowding out.

When an economy is in a recession, Keynesians recommend that a government decreases spending and increases taxes. This leads to budget surpluses and generates government savings. An increase in government savings means that there is more money available to borrow by the private sector. This is called crowding in.

When an economy is in an expansion, Keynesians recommend that a government increases spending and decreases taxes. This leads to budget deficits and requires government borrowing. An increase in government borrowing means that there is more money available to borrow by the private sector. This is called crowding up.

When an economy is in an expansion, Keynesians recommend that a government decreases spending and increases taxes. This leads to budget deficits and requires government borrowing. An increase in government borrowing means that interest rates rise . This is called the law of increasing interest rates.

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Question 5 of 10

5. Question

10 points

According to the table on federal government expenditures in this unit, which is the single largest expense item?

Social Security

Defense spending

Medicare

Interest on the national debt

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Question 6 of 10

6. Question

10 points

According to this Unit’s table on federal government revenue, which of the following is the single largest source of government receipts?

Individual income taxes

Social Security taxes

Corporate taxes

Excise taxes

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Question 7 of 10

7. Question

10 points

A flat tax system is a system in which tax rates for all income groups __________ ; in addition, typically there are no ____________ (loopholes) and incomes below a certain amount (for example, below $25,000) are _____________.

are the same; deductions; exempt

are high; deductions; taxed at a lower rate

are low; subsidies; taxed at a higher rate

are zero; negative rates; subject to the earned income tax credit

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Question 8 of 10

8. Question

10 points

Which of the following is true about a consumption tax system that replaces a country’s income tax system?

All of the listed choices are true of a consumption tax system

It is more difficult to evade taxes because consumption taxes are paid to businesses when consumers purchase goods and services; this means that people that don't pay taxes in an income tax system now pay their share of taxes (for example, illegal immigrants, people who work "under the table", illegal drug dealers and people working in other illegal professions).

A consumption tax system encourages people to save because consumption is taxed at a higher rate; greater savings is good for the long run economic health of people and the country.

A person with an individual income tax rate of 20% (i.e. a person who earns $30,000 pays $6,000 in taxes), pays the same amount of taxes in a consumption tax system if the person spends her/his entire income and the consumption tax rate is 20% (assume no other taxes).

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Question 9 of 10

9. Question

10 points

The Laffer Curve predicts that at very low tax rates, an increase in the rate ________________ government revenue, and at very high tax rates, an increase in the rate _______________ government revenue.

increases; decreases

decreases; increases

increases; increases

decreases; decreases

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Question 10 of 10

10. Question

10 points

Public Choice is a branch of economics that recognizes weaknesses of the existence of governments. Which of the following is a weakness that is described in our text?

Politicians tend to favor special interest groups at the expense of the economy as a whole

Politicians favor the long run and ignore short run advantages of implementing Keynesian policies

Regulators and legislators frequently have no connections with people in the industries that they regulate

All of the listed choices are disadvantages of the existence of governments